The Forming Of Spain's Largest Bank

On MarketWatch: Caja Madrid, Bancaja start merger process

• MADRID (MarketWatch) -- The boards of Caja Madrid and Bancaja said Thursday they've begun a process to merge operations that would create Spain's biggest savings bank.
  
  According to a statement, the country's second-biggest and third-biggest savings banks are also negotiating to merge with five smaller savings banks: Caja Insular de Canarias, Caixa Laietana, Caja Segovia, Caja Rioja and Caja Avila
  
  Caja Madrid and Bancaja said the deal would create an entity with around 340 billion euros [$411.6 billion] in assets.
  
  The president of the combined firm will be named from Caja Madrid, and the executive vice president from Bancaja. The banks intend to pool their earnings and back up each other's solvency, creating a bank that would be the largest commercial and business lender in the country.
  
  Caja Madrid's president is Rodrigo Rato, the former highly respected Spanish economy minister between 1996 and 2004.
  
  The seven-way tie-up of banks is likely to be considered a major push in the direction the government and the Bank of Spain has been urging with regards to consolidation.
  Barbara Kollmeyer is an editor for MarketWatch in Madrid.

ps: On that MarketWatch article, there's a clip of Trichet called 'Never Feared For Euro Survival"

• 
  Trichet: ECB never feared for euro survival
  European Central Bank President Jean-Claude Trichet told reporters the bank's buying of euro-zone government bonds in May was aimed at ensuring markets were functioning the way they were supposed to and that there was no fear the euro would collapse
  

Here's another version: Caja Madrid, Bancaja merger forms Spain's biggest bank

• Caja Madrid, Bancaja merger forms Spain's biggest bank
  
  2010-06-11 06:30:00
  
  Spanish savings banks Caja Madrid and Bancaja Thursday announced that they were merging to create the country's biggest savings bank.
  
  The boards of the two banks approved the merger. The new company will also include five smaller savings banks, with which Caja Madrid had agreed to join operations.
  
  The merged entity was to have total assets of about 340 billion euros ($408 billion).
  
  Caja Madrid Chairman Rodrigo Rato, a former head of the International Monetary Fund, was expected to chair the new entity, which will allow the participating banks to retain their brands and legal structures.
  
  Caja Madrid is currently Spain's second-largest savings bank, after La Caixa, while Valencia-based Bancaja ranks fourth.
  
  Spanish savings banks have speeded up merger plans in order to be able to get financial support from the bank restructuring fund FROB. About a half of the country's 45 savings banks are carrying out or discussing mergers.
  
  Meanwhile, Banco Sabadell and Banco Guipuzcoano were negotiating what could become the first merger among middle-level banks during the current banking restructuration process, sources close to the talks said. There was no official confirmation from either bank.
  International analysts have urged Spain to restructure its banking sector as part of attempts to revive its sluggish economy.

Sounds like good news eh?

Massive Merger and Acquisition Deal in Spain.

But I am shocked to that MarketWatch, ie its Spain editor in Spain, Barbara Kollmeyer, did not quote back what it wrote on 1st June on Caja Madrid regarding its cry for bailout to the tune of 3 billion euros on the back of downgrades by S&P and Fitch!

On 1st June: Caja Madrid said to ask for 3 billion euros of support

• A string of downgrades hit the caja sector from S&P and Fitch
  
  By Barbara Kollmeyer, MarketWatch
  
  MADRID (MarketWatch) -- The stream of negative news from Spain's savings bank sector continued on Tuesday, with a report that the second largest player, Caja Madrid, will tap the government for 3 billion euros ($3.6 billion) of rescue funds.
  
  A spokesperson for Caja Madrid said the report that appeared in several Spanish newspapers saying it will ask for funds from the government's rescue fund was "speculation."
  
  The savings bank said last Friday it was in talks to merge with several regional cajas -- Caja de Avila, Caja Insular de Canarias, Caixa Laietana, Caja Segovia and Caja Rioja.
  
  More bad news emerged for Caja Madrid when Standard & Poor's placed its A/A-1 long and short-term ratings on the savings bank on CreditWatch negative, saying it expects "pronounced pressure" on its operating profit this year and into 2011.
  
  The negative status reflects the possibility of lowering counterparty credit ratings on Caja Madrid, though S&P said any downgrade is unlikely to exceed one notch. It's standalone credit profile and its hybrid securities could suffer a downgrade by one or more notches, warned the ratings agency.
  
  S&P said Caja Madrid, Spain's fourth-largest banking group by total assets, will be closely monitored over the next 18 months to evaluate the magnitude of expected deterioration.
  
  Downgraded on Tuesday was Spanish bank Banco Sabadell, the nation's sixth-largest group by total assets.
  
  Fitch Ratings, who downgraded Spanish sovereign debt last Friday, cut its long-term debt rating on Sabadell to A from A+.
  
  Fitch also downgraded Caja de Ahorros del Mediterraneo's long-term debt to BBB+ from A- with a negative outlook, and Banco de Valencia and Bancaja each to BBB from BBB+ with stable outlooks.
  
  Caja de Ahorros del Mediterraneo is Spain's only publicly traded savings bank. Those shares /quotes/comstock/06x!ccam (ES:CAM 5.83, +0.03, +0.52%) were down 0.2% in Madrid.
  
  It wasn't all bad for Sabadell, whose shares were down 3.6% amid weaker Spanish and European markets overall from nearly the start of trading.
  
  Fitch praised its "good domestic retail franchise, particularly with small to medium-sized enterprises, as well as its track record of sound pre-impairment operating profit, good cost efficiency and an improvement in regulatory capital." ( read rest here )

On ZH: Largest Spanish Savings Bank Combination Of Caja Madrid And Bancaja To Request €4.5 Billion In Aid

• Earlier today we pointed out that Spanish cajas Caja Madrid and Bancaja were merging in the latest Spanish rescue combination, involving 5 other smaller banks. Reuters is now reporting that this brand new combination, which incidentally is the now the biggest Spanish pro forma saving bank, has requested €4.4-4.5 billion in aid from the Spanish restructuring fund. Spain has now essentially one upped the US: instead of using an FDIC-like intermediation to give "deep value" investors a nice discount on acquired assets courtesy of taxpayers, the banks in Spain are directly going to the taxpayer trough as soon as two horrible balance sheets combined, and the result is an even bigger monstrosity. But that's ok, Spain found some other European banks to sell sovereign debt to earlier today, knowing full well that the ramifications of a regional failed bond auction would also take down all of Europe. The ponzi valiantly marches on. After all it's only the ECB's electronic ones an zeroes that are at risk.

Here's an old posting (dated 2008) by Yves: Under-the-Radar Rescue of Spanish Mortgage Banks

Why France, UK And Germany Are In Deep Mess!

Posted earlier: The Pain In Spain and Could Greek Financial Crisis Hit UK Hard?






On Zero Hedge, Tyler writes one important warning! The CDS Traders' Verdict Is In - UK In Deep Shit... As Are France And Deutschland

• Portugal... Spain...Greece...these are all last week's news based on CDS trading patterns. Indeed, this week saw the biggest trade unwinds of all top 1000 CDS entities (including all corporates) precisely in these three names. As the PIIGS implosion is finally being appreciated by everyone and their grandmother, the "speculators" are booking massive profits: the net cover/rerisking in Portugal and Spain was a massive $500 million net notional unwinds in each in the week ended April 30. Also known as taking profits. Greece and Ireland were also in the top 5, so as we have repeatedly claimed, the market will no longer make the news in Club Med. So where will it? No surprise there - the UK, France and Germany. The smartest money in the world is now actively betting the core of the eurozone is where the next CDS blow up will take place. With a stunning $630 million, $558 million and $370 million in net notional derisking, France, UK and Germany are the top three most active recipients in negative bets in the prior week, not just in sovereigns but in all names. The greatest non-sovereign derisker in the last week? Goldman Sachs, with $175 million. Nuff said. Yet a tangent on the UK: last week the UK saw $443 million in net notional derisking. This week the number is even higher: $558 million. There is now over $1 billion in net risky bets made that the UK may not last. And Zero Hedge's outside bet to be the first core country to blow up, thanks to its massive PIIGS exposure, France, finally made the top spot in net derisking, with $629 million in net notional, or 189 contracts. The smart money is now massively betting that Europe's core is done for; as the PIIGS have demonstrated, the blow out in spreads for the core trifecta can not be far behind. .....

Do see the tables posted in the posting The CDS Traders' Verdict Is In - UK In Deep Shit... As Are France And Deutschland

The Pain In Spain

• Standard & Poor's cut its ratings on Spain by one notch to AA from AA-plus Wednesday, saying a longer-than-expected period of low growth could undermine efforts to cut the budget deficit.
  
  The outlook is negative, reflecting the possibility of another downgrade if Spain's fiscal position worsens more than S&P currently expects, the agency said in a statement.
  
  "In our opinion, Spain is likely to have an extended period of subdued economic growth, which weakens its budgetary position," Standard & Poor's said.
  
  "We now project that real GDP growth will average 0.7 percent annually in 2010-2016, versus our previous expectations of above 1 percent annually over this period," S&P said.

That was from the article posted on CNBC: S&P Cuts Spain's Rating One Notch on Economic View

Despite the downgrade, on the Syndey Morning Herald Spain 'on track' after credit downgrade‎

• Spain is on track to bring its public deficit within an EU limit by 2013, its finance minister said on Wednesday after ratings agency Standard & Poor's cut the country's credit rating.
  
  "We have a plan to reduce the deficit, we are putting it in place, we are meeting one by one all the timelines which we have set," Elena Salgado said during an interview with public television TVE.
  
  "I believe the markets will evaluate the situation this way. When the situation in Greece is resolved, I believe things will return to their right place," she added....

Published on ABC.es. Un desliz del INE desvela que la tasa de paro superó en marzo el 20%, la peor desde 1997

With the help of Uncle Google's language translation: here

• An error by the National Institute Estadísitca (INE) provided further insights on the morning of yesterday, for a few minutes, unemployment data from the Labour Force Survey (LFS) for the first quarter of 2010 to be made public on Friday.
  
  According to those who had access to the paper, the unemployment rate in the first quarter rose to 20.05%. Es It is the first time since 1997 that exceeds the benchmark rate of 20%. The clarification came in the early hours of the morning.
  
  The EPA in the first quarter of 2010 indicates that the number of unemployed persons was 4.6127 million, ie more than 286 200 end of 2009 (4.3265 million). .....

A 20.05% unemployment?!!!

Surprisingly, this incredible high rate of unemployment is not unexpected. I remembered the following posting on Nakedcapitalism back in July 2009: Spain: Bleak forecast puts unemployment at 22% in 2010

• Citigroup has just released a forecast which is very troubling in regards to employment and growth in the Spanish economy. With unemployment already having hit 17.9%, Citigroup expects layoffs to increase this to 22% in 2010....
• Basically, things are looking bleak in Spain despite the positive spin some are putting on today’s numbers. Hopefully my last two posts on Spain, House price declines accelerate in Spain and Hypo Real Estate need for 10 billion also reveals huge problems in Spain, give you a sense that there is more downside to come for Spain’s property sector and its banking sector. This very definitely will negatively impact the employment market in Spain. Zapatero should feel lucky he was re-elected last year or he too would soon find himself unemployed.

Just published on Wall Straits Journal In Spain, Crisis Stays Low-Key‎

• By JONATHAN HOUSE
  
  MADRID—Spain's worsening financial crisis remains a strangely low-key affair. One in five people here are out of work, but generous unemployment benefits, strong family support networks and a bustling informal economy are helping maintain people's lifestyles. Bars and restaurants in the city center are doing brisk business.
  
  "It seems to me the situation here is less bad than in Greece," says Manuel Herrera, a 30-year-old Peruvian immigrant, who has seen the recent images of angry mobs protesting in Athens. "Here in Spain, the crisis is not so noticeable: People still go out for beers, to buy cigarettes, whatever."
  
  But the Asian-restaurant chain he works for as a cook has closed down four of its 12 restaurants, and Mr. Herrera says he sees a sense of hopelessness setting in that could point to prolonged economic stagnation.
  
  "The Spanish were not ready for this crisis," he says. "The situation's not getting any worse, but it's not getting any better either."
  
  For years, Spain was one of the euro zone's biggest success stories. Membership in the common currency in 1999 brought historically low interest rates that fueled a credit and construction boom, which transformed the country into one of Europe's chief growth engines. Through 2007, Spain created more than one-third of all euro-zone jobs and absorbed four million immigrants.
  
  The global financial crisis brought that crashing down. Spain is grappling with 20% unemployment and a double-digit budget deficit that threatens to land the country in a Greek-style financial crisis.
  
  Though the government expects the economy to return to growth in the first quarter, that follows contractions in six consecutive quarters.
  
  On Wednesday, Standard & Poor's cited low growth prospects resulting from mounting banking-system stress, high household debt levels and low export capacity as primary factors behind its decision to downgrade Spain's sovereign debt.
  
  Thirty-year-old Eduardo lost his job as a computer programmer a year ago and says many of his friends are also out of work. He still isn't ready to take just any job: "There are jobs out there, but most of them don't pay to well, or they require higher levels of experience."
  
  Until recently, the government of Socialist Prime Minister José Luis Rodríguez Zapatero has focused on anticrisis measures to cushion the pain of the unemployed by extending benefits, cutting taxes and taking measures to create short-term jobs for construction workers. It has gone to great pains to maintain good relations with unions.
  
  But the government has changed gears amid mounting pressure from international investors to show it can pull the economy out of the doldrums and get its debt levels back on a sustainable path. It has announced plans to cut the public-sector wage bill, push back the retirement age and reform Spain's rigid labor market. The plans are vague thus far and have yet to ruffle many feathers.
  
  The government is counting on a quick agreement on a support package for Greece to contain the euro-zone financial crisis and buy Spain more time to get its fiscal house in order. In an interview, Deputy Finance Minister José Manuel Campa said Spanish bond spreads have been blown out to "exceptional" levels that he believes are temporary. "Considering that they have been affected by the Greek situation, the sooner it is resolved, the better," he said.

Worth reading: No Wonder the Eurozone is Imploding

Denials Over Greek Bailout!

Highlighted yesterday: More On The Greece Crisis

Yesterday the markets recovered. Everything hinged on Greece. On CNBC: Stocks Close Up Broadly On Hopes for Greece and on Edge Financial Daily: Wall St gains on reports of help for Greece

Is everything A OK now?

On Times Online: Storm over bailout of Greece, EU's most ailing economy

• Angela Merkel tried to calm fevered speculation in financial markets yesterday that Germany was preparing to lead a bail-out of Greece amid a split in the EU on how to handle its most ailing member.
  
  The German Chancellor denied reports that her Finance Minister was conducting secret talks with Jean-Claude Trichet, head of the European Central Bank, and with other capitals on an EU rescue fund for Athens.
  
  Mrs Merkel has staunchly resisted suggestions that the EU must swallow its pride and turn to the Washington-based IMF for a solution to the growing economic turmoil in Greece, with fears that its troubles in international finance markets will trigger a domino effect, toppling other weak members of the eurozone such as Ireland, Portugal, Spain and Italy.
  
  But last night there were signs of a developing European split over calling in the International Monetary Fund, a move also strongly opposed by Brussels, with suggestions from Sweden’s Finance Minister and other officials that this might be better than the EU programme outlined last week.
  
  Mrs Merkel has repeatedly rejected the idea that the 16-nation eurozone would need to look to the IMF, which is already overseeing recovery efforts in Latvia and Hungary — both EU members outside the single currency. Her insistence that the eurozone can keep its own house in order led to market speculation yesterday that an EU bail-out was imminent.
  
  There were also reports yesterday that Wolfgang Schäuble, the German Finance Minister, was working bilaterally and at the European level on putting together a package to help Athens.
  
  A strong rally on Wall Street went into reverse when a spokesman for Mrs Merkel said flatly that this was “wrong”.
  
  The crisis in Greece that is putting the euro under its biggest strain in the ten-year history of the single currency has forced its way on to the agenda of an economic summit for the 27 EU leaders in Brussels tomorrow. It is the first extraordinary meeting called by the new EU President, Herman Van Rompuy, and was supposed to be a relaxed day of long-term thinking about job creation over ten years. Instead, the prospect of a Greek default triggering a wider crisis in other weak economies such as Portugal and Spain will hang over the leaders.
  
  The split emerged when Anders Borg, the Swedish Finance Minister, said that “the IMF has the technical knowledge” to resolve the Greek economic crisis, breaking the careful EU public consensus that the eurozone can cope. Mr Borg insisted that discussion of an IMF role in resolving Greece’s crisis should not be ruled out.
  
  An EU official added: “There have obviously been discussions going on at an EU level about what the options are. There is a feeling that the IMF could offer a better course of action. The IMF has precedents or doing this, it has a system with measures in place.”

Denials, denials and more denials!

But Houston, they do know that the problems are real, clear and presently undeniable, yes?

So what exactly is EU going to do about it?

BUT what about Spain?

Here's Paul Krugman's editorial written a day earlier on NY Times. Anatomy of a Euromess

Euromess? Cute but precise! (DO click on the above link to see the charts posted!)

• Most press coverage of the eurozone troubles has focused on Greece, which is understandable: Greece is up against the wall to a greater extent than anyone else. But the Greek economy is also very small; in economic terms the heart of the crisis is in Spain, which is much bigger. And as I’ve tried to point out in a number of posts, Spain’s troubles are not, despite what you may have read, the result of fiscal irresponsibility. Instead, they reflect “asymmetric shocks” within the eurozone, which were always known to be a problem, but have turned out to be an even worse problem than the euroskeptics feared.
  
  So I thought it might be useful to lay out, in a handful of pictures, how Spain got into its current state. (All of the data come from the IMF World Economic Outlook Database). There’s a kind of classic simplicity about the story — it’s almost like a textbook example. Unfortunately, millions of people are suffering the consequences.
  
  The story begins with the Spanish real estate bubble. In Spain, as in many countries including our own, real estate prices soared after 2000. This brought massive inflows of capital; within Europe, Germany moved into huge current account surplus while Spain and other peripheral countries moved into huge deficit:
  
  These big capital inflows produced a classic transfer problem: they raised demand for Spanish goods and services, leading to substantially higher inflation in Spain than in Germany and other surplus countries. Here’s a comparison of GDP deflators (remember, both countries are on the euro, so the divergence reflects a rise in Spain’s relative prices):
  
  But then the bubble burst, leaving Spain with much reduced domestic demand — and highly uncompetitive within the euro area thanks to the rise in its prices and labor costs. If Spain had had its own currency, that currency might have appreciated during the real estate boom, then depreciated when the boom was over. Since it didn’t and doesn’t, however, Spain now seems doomed to suffer years of grinding deflation and high unemployment.
  
  Where are budget deficits in all this? Spain’s budget situation looked very good during the boom years. It is running huge deficits now, but that’s a consequence, not a cause, of the crisis: revenue has plunged, and the government has spent some money trying to alleviate unemployment. Here’s the picture:
  
  So, whose fault is all this? Nobody’s, in one sense. In another sense, Europe’s policy elite bears the responsibility: it pushed hard for the single currency, brushing off warnings that exactly this sort of thing might happen (although, as I said, even euroskeptics never imagined it would be this bad).
  
  Am I calling, then, for breakup of the euro. No: the costs of undoing the thing would be immense and hugely disruptive. I think Europe is now stuck with this creation, and needs to move as quickly as possible toward the kind of fiscal and labor market integration that would make it more workable.